Enslaved by Peer Pressure

ursamajor just alerted me to the fact that LJ no longer provides basic free accounts to new users. Not only does this suck from a general freeloader aspect, but this actually is an extremely poor business decision for LJ.

Currently, my understanding is that less than 2% of LJ users are paid users, meaning that the vast majority of LJ users are free users or Plus users who accept ads on their LJ. It's obvious how Plus users are being monetized, since this is basically like the Google business model where clickthroughs are the key to making a profit. It's obvious how paid users are monetized, since they pay actual money. But the monetization of Basic users may not have been obvious to LJ's business team, which is why they've made this stupid decision. I'd argue that there are several reasons that the LJ Basic account should stay:

1) I'm assuming that LJ basic accounts have traditionally been the most active form of customer acquisition. Any time you mess with your most successful customer acquisition method, you're gambling. If the LJ basic accounts with no ads are seen as a significant value addition and differentiator in 2008, then LJ is melting into the crowd of commercialized social aggregators. It's not good to take away your biggest differentiator. To see if this is actually true, I'd have to know how many Basic vs. how many Plus users were out there and the current attitude of new adopters towards ads in blogging. ursamajor and I disagree on this last point. She thinks it's a distinct value-add for content differentiation whereas I'm more skeptical and would have to see how the content differentiation created by old users was socially mapped. But I honestly don't know what the answer is. The correct action here would really depend on accurate market research of the current LJ community. Dollars to donuts says that LJ doesn't have a qualified marketer on staff (meaning a quantitative analyzer with significant B2B and B2C experience who understands online communities).

2) The inherent communicative and commercial value of social networks is generally held to be n*(n-1) based on Reed's Law. This means that the network value increases or decreases exponentially as the number of people increase or decrease. For instance, if you add 10% to your existing social network, you'll actually get a value of maybe 20%. If you remove 10%, you'll lose about 20% of value from your network. Small changes in numbers create big changes in network value. Any hinderances that LJ places on customer acquisition will reduce the future value of LJ both for free customers and for paid/monetized customers. Assuming that SUP bought LJ to make money, SUP needs to start understanding the economics of social networks and understand the foremost necessity of technology adoption for new customers. Basic users are still part of the social networking value that LJ brings to the table and help keep Plus and paying customers at LJ. Valuations of companies are usually based on future growth potential. To the extent that getting rid of the basic option stunts growth, this is a bad idea.

3) LJ is trying to monetize customers in the wrong way. I agree that some form of "Plus" account is ultimately LJ's future. Free with some sort of advertisement is definitely the way to go. However, there are subtler ways to advertise than to provide click-through ads that may also be useful. The keywords library is an incredibly powerful tool that marketers would have a field day in using. Simply making this data and demographic/geographic available from Plus users would provide a fair amount of revenue from market analysis departments and groups. The accuracy of this data could be encouraged through demographic and geographic communities that provide some incentive to join, such as free LJ gifts or some sort of "elite" status. One could even sell the right to send messages to the LJ Inbox. LJ should also push its custom communities harder to push, say, Harry Potter communities to the fan base. (Yes, they should encourage fandom. Crazy talk, I know. Why would you want to encourage fanatical loyalty towards your product?) Doing all these things would probably make Plus users more profitable than paying customers. But you also need to bring these customers in to start with. Opting in to deluxe features of Livejournal makes more sense than providing a deluxe version of LJ with ads to a beginner user who may not even know which links to click on in the first place, much less understand which links are commercials. New users have to be babied to retain them and providing a more complex product is a step in the wrong direction. But once a basic user is broken in, maybe LJ could send hints and tips for "optimal" LJ usage and push LJ products that can only be optimized as a Plus user. But the key is that you have to drive loyalty and fluency in the LJ product to keep them in the first place.

4) The nature of this decision was completely antithetical to the original concept of Livejournal. I'm jaded enough to believe that LJ has jumped the shark and has no idea how to work as a business except to try to pursue traditional business strategies that do not work in a Web 2.0/Social Networking business model that are trying to grow. But LJ was originally supposed to be a collaborative community and the LJ Advisory Board, which apparently had no knowledge of this account change, is starting to look like a paper tiger when it comes to weighing in on significant LJ decisions. Simply getting rid of a major account option without polling the end user community is dumb from a marketing perspective both because more data is always better than less and because goodwill is a significant asset that can be easily depleted through stupid moves like this. In accounting-land, the concept of "Goodwill" is actually accounted for as an asset in determining the value of a company. Ironically, even though LJ is valued much higher now than it was pre-Six Apart, I'm betting that the books have shown a massive write-off for devaluation of goodwill. If it doesn't, their books don't reflect reality.

Honestly, I feel like LJ has been run by idiots who fundamentally don't understand what they're supporting or selling. It makes me feel like I should go to Silicon Valley right now because I could take these chumps running a closed network like Facebook or a poorly managed Livejournal. Really, the only things stopping me are that I want to finish my MBA and I just got a job where I'm learning a lot and have an incredibly dynamic boss. Oh, and the love of a good woman! But if chumps like these people are still running real companies in 2010 and haven't been replaced by competent executives, I'm totally coming into their yard to kick ass, take some names, and take their lunch money while pushing our use of technology forward.